Correlation Between Shell PLC and AMS Small

Can any of the company-specific risk be diversified away by investing in both Shell PLC and AMS Small at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Shell PLC and AMS Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shell PLC and AMS Small Cap, you can compare the effects of market volatilities on Shell PLC and AMS Small and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Shell PLC with a short position of AMS Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and AMS Small.

Diversification Opportunities for Shell PLC and AMS Small

0.67

Correlation Coefficient

Shell PLC  AMS Small

Poor diversification

The 3 months correlation between Shell and AMS is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and AMS Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMS Small Cap and Shell PLC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Shell PLC are associated (or correlated) with AMS Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMS Small Cap has no effect on the direction of Shell PLC i.e., Shell PLC and AMS Small go up and down completely randomly.

Pair Corralation between Shell PLC and AMS Small

Assuming the 90 days trading horizon Shell PLC is expected to generate 1.68 times less return on investment than AMS Small. In addition to that, Shell PLC is 1.38 times more volatile than AMS Small Cap. It trades about 0.1 of its total potential returns per unit of risk. AMS Small Cap is currently generating about 0.23 per unit of volatility. If you would invest  135,248  in AMS Small Cap on April 24, 2025 and sell it today you would earn a total of  16,245  from holding AMS Small Cap or generate 12.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Shell PLC  vs.  AMS Small Cap

Pair Trading with Shell PLC and AMS Small

The main advantage of trading using opposite Shell PLC and AMS Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell PLC position performs unexpectedly, AMS Small can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AMS Small will offset losses from the drop in AMS Small's long position.

The idea behind Shell PLC and AMS Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.